Gold suddenly shot higher at the New York open, but it then pulled back to the level reached by today's weak London trade.

US investors – who'd left the market above $627 on Friday night – found gold ticking lower in Europe after the Martin Luther King holiday on Monday. The metal had dipped against all currencies bar the Japanese Yen right from the start of Asian trade overnight.

Its spike higher, again versus all currencies, meant gold notched its highest PM Fix in London since Jan.4 at $627.05 per ounce. But it looks like US investors got themselves square as soon as they could, pushing the gold price back to the prevailing trend for the day.

Analysts at Scotia Mocatta now expect congestion between here and $635 per ounce. "On the downside," they say, "expect buying from the 200-day moving average down to 615.00 as the old resistance level now provides support."

"It much depends on currencies and oil prices," reckons Wolfgang Wrzesniok-Rossbach, head of precious metals marketing at Heraeus in Germany. "The Euro is up today and that supports precious metals to some extent. For the time being, gold seems to be trading in a range."

Meantime on the data front, inflation in the United Kingdom hit 3.0% in Dec. on the discredited CPI measure. Data released today also said annual inflation hit 4.4% on the old and more trusted RPI measure – its fastest pace in more than 15 years.

At 4.4% year-on-year, RPI inflation means the Pound Sterling would lose half its purchasing power in just 17 years. According to the gold price, however, the Pound has dropped half its value in the last six years already.

The Bank of England got today's data early, and last week it raised Sterling interest rates to 5.25% in response. But even at this level – the highest base rates since August '01 – real interest rates continue to shrink.

In fact, British savers are now earning just 0.6% above inflation on their cash deposits,  the worst rate of return since summer 2003, back when the Bank of England slashed its base rate to fend off the threat of deflation.

The US Fed did the same, as did the European Central Bank (ECB) in Frankfurt. Are the policy wonks charged with defending "price stability" now reaping the whirlwind of cheap money?

The fattest component of last month's leap in UK inflation came in Fuel & Light...up more than 29% from a year earlier. And as the UK government's own statistical agency confessed on Monday, rising costs are most prevalent in those goods and services people have to buy regularly.

It's big-ticket discretionary purchases – produced at low cost by cheap labour in the new capitalist markets of India, China and East Asia – that have been sinking in price and masking the signs of inflation in the official cost of living data.

Now the surging supply of Sterling – matched by a flood of Euros, Dollars and Yen – is rushing back in the form of higher prices in the shops.

What comes next?? If you'd like to defend a little of your wealth against sinking currency values, you may want to consider buying gold today. Click here to learn more now...